The Office of Federal Contract Compliance Programs (“OFCCP”) in the U.S. Department of Labor (“DOL”) recently posted answers to Frequently Asked Questions (“FAQs”) regarding how federal contractors should determine whether a worker is an employee versus an independent contractor.
The distinction between employees and independent contractors is extremely important for contractors because compliance obligations are frequently based on the number of employees in a company. Companies can face significant penalties for misclassifying workers, even if unintentional. For example, the Affordable Care Act (“ACA”) employer mandate applies to companies with 50 or more full-time equivalent (“FTE”) employees and can result in significant penalties to a contractor who fails to provide prescribed coverage to a sufficient percentage of full-time employees. A contractor may seek to classify more workers as independent contractors in order to avoid the ACA employer mandate (trying to stay below the 50 FTE threshold) or in order to lessen the number of full-time employees to whom it must offer prescribed coverage. If a mistake is made, the contractor could face large penalties based on its entire full-time employee population (not just the workers who are misclassified). Contractors choosing this strategy must be extremely careful to classify workers consistent with the FAQs and other applicable laws.
So how does one determine whether a worker is an employee or an independent contractor? The newly posted FAQs list twelve factors to be considered in determining whether an individual is an employee. These factors include: who controls when, where and how the job is performed; whether a worker is hired for specialized skills, knowledge and expertise; the location of the work; the source of equipment and materials; and the provision of benefits to the worker. These factors are not designed to provide a bright-line test, but are applied to the specific facts available on a case-by-case basis. For a complete list of factors and additional analysis, the FAQs can be accessed here.